Lately I've been trying to figure out why these two options were removed from the Privacy setting on stock android (CTMOD, etc..). They used to be around and were used to backup your android's setting and certain app information to the google cloud. It turns out that Google decided to remove this feature from the Android.
I'm on CM7 and have the two options available (but they do nothing). If your on the regular stock or CTMOD equivalent you won't have these options.
I've found out that these options (even if enabled via a custom rom like CM7) no longer work. Google has removed the ability since Android 2.2. Originally it was a great idea but now they prefer backups on the SD card.
So if any of you have wondered why these options seem to be appearing and disappearing. It varies based on the rom your using. Regardless these two options no longer do anything
Froyo 2.2, Settings > Privacy > Backup option, GONE
Ars reviews Android 2.2 on the Nexus One
If you still want to enable it but you can't see it on stock. Here is a way to do it. I should remind you though they don't do anything.
lost privacy settings on android 2.2
Here is a picture of what it looks like for those wondering.
More pictures can be found here: http://theitbros.com/avoid-google-backup-restore-android
p.s: If you find something that states that these features still work let me know. Most of the threads and forums I've read have all said that google removed these features on purpose.